DEVELOPMENT 3055 Members of the Hedgehog (Hh) family of proteins are conserved morphogens that spread and modulate cell fates in target tissue. Mature Hh carries two lipid adducts, a palmitoyl group at the N terminus and cholesterol at the C terminus. Recent findings have addressed how these lipid modifications affect the function and transport of Hh in Drosophila. In contrast to the palmitoyl adduct, cholesterol appears not to be essential for signalling. However, the absence of the cholesterol adduct affects the spread of Hh within tissues. As we discuss here, the exact nature of this effect is controversial. Introduction A relatively small number of secreted proteins spread through tissues during development and organise tissue patterning. Understandably, there has been great interest in the mechanisms that modulate the range of action of these developmental ligands. So far, three such secreted developmental signals, Wingless/Wnt, Spitz (Drosophila Transforming Growth Factor ) and Hedgehog (Hh), are known to undergo lipid modification (Jeong and McMahon, 2002; Miura et al., 2006; Pepinsky et al., 1998; Porter et al., 1996; Willert et al., 2003). All three are palmitoylated in the lumen of the endoplasmic reticulum (ER) during biosynthesis. In addition, Hh also undergoes cholesterol modification (Porter et al., 1996). Although the palmitoylation of cytoplasmic proteins has been extensively studied, the palmitoylation of proteins residing in the lumen of ER-derived vesicles has only been recently recognised, and the enzymology of these reactions is still poorly understood. In the cases of Spitz and Hh, the reaction appears to be catalysed by the product of the gene skinny hedgehog, which is also known as rasp or sightless (Amanai and Jiang, 2001; Chamoun et al., 2001; Lee and Treisman, 2001; Micchelli et al., 2002). By contrast, more work is needed to confirm that Wingless palmitoylation is catalysed by the gene product of porcupine, as has been suggested (Kadowaki et al., 1996; Willert et al., 2003). Interest in the role of lipid adducts in morphogen signalling and activity is heightened in the case of Hh because it undergoes a second lipid modification. The N-terminal half of Hh becomes conjugated with cholesterol by an autocatalytic reaction that simultaneously cleaves off the inactive C-terminal polypeptide (Porter et al., 1996). Thus, mature active Hh, which is about half the size of full-length Hh, carries a palmitate group at the N terminus and a cholesterol moiety at the C terminus. After biosynthesis, Hh must be released from secreting cells. This requires the activity of a dedicated multipass-membrane protein encoded by the dispatched (disp) gene (Burke et al., 1999). There is still some controversy as to the exact mode of Disp action. One view is that, by virtue of its sterol-sensing domain, Disp allows the release of lipidated Hh from the cell surface (Burke et al., 1999). Alternatively, Disp has been suggested to guide Hh from the basolateral membrane to the apical membrane of the cell, where the release of Hh would take place (Gallet et al., 2003), thus allowing its subsequent extracellular transport. Lipid modification is believed to cause proteins to tightly associate with cell membranes (Linder and Deschenes, 2004). Such an association is expected to cause lipidated ligands to remain stuck at the surface of secreting cells, thus preventing their subsequent transport. However, the transport of lipidated molecules, such as Hh, does take place. So, how is membrane association compatible with long-range transport and signalling? It has been suggested that specific transport mechanisms have evolved to overcome this problem. For example, lipid particles called argosomes have been proposed to extract lipidated ligands from the cell surface and then to act as vehicles for long-range transport (Eaton, 2006). According to this view, cholesterol would be required for transport, as it would be needed for the loading of a lipidated protein onto the transport vehicles. Here, we review recent findings that address how lipid modifications of the highly conserved ligand Hh affect its signalling activity and range in Drosophila epithelia. One report (Gallet et al., 2006) suggests that cholesterol is indeed required for long-range Hh transport. Two other reports (Callejo et al., 2006; Dawber et al., 2005) propose that, in the absence of a cholesterol adduct, the spread of Hh is increased, although this is at the expense of its signalling activity near its source, perhaps because of the dilution of unlipidated Hh in the extracellular space. Below, we evaluate the evidence and then briefly relate it to the situation in vertebrate embryos. Tools and tissues for the study of Drosophila Hh The wing imaginal disc system One system of choice to study the range of extracellular ligands is the wing imaginal disc of Drosophila. This structure, found in the growing larva, consists of an epithelial sack that has a thick, columnar, pseudostratified epithelium on one side and a squamous epithelium, called the peripodial membrane, on the other (Fig. 1B). The space between the two epithelia is called the peripodial space. It is the columnar epithelium in the central region of the disc (the pouch) that gives rise to the wing proper, hence most attention has been devoted to this tissue. Somewhat unusually for epithelia, the apical side of this tissue faces the inside of the disc (the peripodial space) (Pallavi and Shashidhara, 2005) (Fig. 1B). Hh is produced from the posterior half of the disc [the posterior (P) compartment], from where it spreads into the anterior (A) compartment (Basler and Struhl, 1994; Tabata and Kornberg, 1994) (Fig. 1A, parts a,b). It forms a gradient (over about 10 cell diameters) and activates a series of target genes in a concentration-dependent manner (Fig. 1A, parts c,d). Examples of ‘high level’ targets include engrailed (en) and patched (ptc), while decapentaplegic (dpp), cubitus interruptus (ci), collier (col) and iroquois (iro) are low level targets (Torroja et al., 2005). How the range of Hh is regulated so that it activates its targets in the right pattern is an issue of considerable interest. Development 133, 3055-3061 (2006) doi:10.1242/dev.02472 How does cholesterol affect the way Hedgehog works? Franz Wendler*, Xavier Franch-Marro* ,† and Jean-Paul Vincent MRC National Institute for Medical Research, The Ridgeway, Mill Hill, London NW7 1AA, UK. *These authors contributed equally to this work † Author for correspondence (e-mail: xfranch@nimr.mrc.ac.uk) REVIEW